Final answer:
Variable overhead related to construction of machinery is capitalized and included in Property, Plant, and Equipment (PP&E) on the balance sheet and not listed as a separate item. These costs then transition to the income statement over time through depreciation.
Step-by-step explanation:
Variable overhead related to the construction of machinery falls under variable costs, which vary depending on the level of output. In financial reporting, these costs are not shown directly on the balance sheet. Instead, variable overheads incurred during the construction of machinery are typically capitalized as part of the cost of constructing the asset. Once the machinery is complete and ready for use, it is listed on the balance sheet under the category of Property, Plant, and Equipment (PP&E). The expense associated with variable overhead will subsequently be recognized through depreciation, affecting the income statement over the useful life of the machinery.
Therefore, variable overhead related to construction does not appear as a separate item on the balance sheet, but as a portion of the capitalized cost of the machinery.